The new millionaires

Forget flashy cars and over-the-top spending. The typical millionaire living in Canada today could very well be that unassuming neighbour next door.

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Richie Rich epitomizes the stereotypical millionaire. A fictitious comic book character that came on the scene in 1953 and spawned a series of TV shows and feature films, he was a rich kid living in an opulent mansion with his very own butler, Cadbury. Richie flaunted his wealth by having at least two of everything and hardly ever felt the need to attend school.

Fast-forward to 2016 and the typical millionaire living in Canada has a vastly different profile: private, hardworking, rarely ostentatious and probably taking out the garbage herself. Given that there are 984,000 millionaires in Canada (and 33,717,000 worldwide*), according to the Global Wealth Report 2015 from Credit Suisse Research, today’s millionaire could very well be that unassuming neighbour next door.

While our dollar may have taken a hit from falling oil prices, and the number of millionaires in Canada has dipped slightly from previous years, the report shows wealth per adult in this country climbed to US$248,276 in 2015 from US$108,464 in 2000. The report also ranks Canada ninth among the top-20 countries worldwide with the greatest number of ultra-high-net-worth individuals — i.e., those with net worth of at least $50 million, excluding debt. Case in point: a “Home of the week” featured in the Globe and Mail in July was an awe-inspiring 47,000-sq.-ft. mansion in Oakville, Ont., listed at $65 million.

So the million-dollar question is: why have we become so good at nurturing the affluent? And with the average detached house price hitting $1 million in Toronto and $1.3 million in Vancouver, are more of us sitting in Canada’s upper echelon than we even realize?

“We’re always debating the definition of a true millionaire,” says Steve Geist, senior executive vice-president and group head of Wealth Management at CIBC. “When I was a kid a million dollars was a huge amount of money you could live off of the rest of your life, but inflation has chewed away at that mystical amount.” As an FCPA himself, Geist says true wealth is always revealed in the balance sheets with investable assets that aren’t tied to debt. “Sometimes, we perceive a household with three fabulous cars in the driveway as a sure sign of wealth,” he says. “But if you have $10 million in assets and another $11 million in debt, it’s not a good thing.”

Geist says that contrary to the usual stereotypes, his wealthy clients are humble, hardworking people and it’s often only at the ultra-high-net-worth level that they would be indulging in flashier kinds of assets. “It’s like when you peel back an onion and it’s not as it appears,” he says. “If you interacted with them on the subway you’d have no concept of their significant net worth.”

According to the latest information from Statistics Canada, the wealthiest Canadians are primarily located in Toronto, Montreal, Calgary and Vancouver. With more than 31% of Canadian women working as primary breadwinners, perhaps it’s not surprising that a third of today’s millionaires are also female. Research from a series of studies conducted by BMO Financial Group shows that businesses owned by women have the highest instance of yearly revenue growth, at more than 20%, and that these entrepreneurs have a real appetite for taking corporate risks. “Women are controlling huge amounts in spending these days — they are more powerful and are making more decisions than ever before,” says Janet Peddigrew, regional vice-president and managing director at BMO Private Banking. “We’ve learned that women approach business in a different way and if you give them the support networks they need, they are going to succeed.”

In addition to Canada’s ability to better support women in business, Peddigrew believes we’ve had success in cultivating millionaires because of our penchant for innovation and our welcoming attitude toward immigrants. “Our research shows almost half of [millionaires] are immigrants or describe themselves as first-generation Canadians,” she says. “We’ve really opened up Canada to say, if you’re willing to move here and invest, there is opportunity.”

Geist agrees. “My father was an immigrant and so many of them have been successful,” he says. “They often arrive with a solid work ethic and education already, and that’s a good grounding for building net worth.”

Some immigrants and foreign investors are also arriving with substantial cash flow. In BC, for example, a steady influx of investors from mainland China has kept real estate prices in Vancouver among the highest in the country. According to the Global Wealth Report 2015, China has crossed the million-millionaire threshold for the first time and Asia-Pacific has overtaken North America as having the highest concentration of wealthy individuals. “Some are very wealthy people who prefer to use cash,” says Kathy, a pseudonym for a relationship manager based in Vancouver whose ultra-high-net-worth clients are buying homes that average $3 million to $5 million. “If they carry a mortgage, it’s small and only to establish credit.” In addition to the attractive climate, she says, BC is appealing because it affords them the space to build their ultimate dream home for about a third of what it would cost them in their home country, where space is at such a premium. “It’s like living the American dream, only in Canada.”

Along with having substantial funds on hand to play with, foreign investors are typically more aggressive with their money and quicker to make decisions than their Canadian counterparts, says CPA Vinay Khosla, a tax partner at Bateman MacKay in the greater Toronto area. He says his Indian clients in particular are more apt to talk openly about their riches too. “In India, a lot of wealth is in land and gold, so people are used to wearing it and showing their wealth — it’s been like that for hundreds of years,” says Khosla, who is of South Asian descent. “My Canadian high-net-worth clients tend to be a little more secretive.”

With recent economic turmoil in the UK, Canada could soon witness more European wealth coming to this side of the world as well. “We’ll likely see a higher demand for safe money and cities like Vancouver or Toronto are good places to park capital,” says financial and investment adviser John Nicola, founder and CEO of Vancouver-based Nicola Wealth Management. “Coming to Vancouver and spending $1 million to $5 million on a house that just sits there is a form of long-term insurance for wealthy investors that average Canadians just can’t get their head around.” (That said, this past July the Canada Revenue Agency revealed a plan to crack down on real estate tax cheats coming into Vancouver by assigning 50 auditors to investigate purchases funded by unreported foreign income.)

Mark Halpern, founder of WEALTHinsurance.com, a tax and estate-planning firm for wealthy clients based in Toronto, says Canada has rightly earned its spot as an ideal place to make and maintain money. “It’s safe, respected and a relatively stable economy with functions in place to protect it,” he says. “We were the last ones into the banking bump in 2008 and the first ones out, and that impressed the outside world.”

But while the setting may be perfect to attract a moneyed population, Halpern believes there is untapped potential in better serving this group from a financial perspective. “I used to think someone of substantial wealth would have the best lawyers and accountants,” he says. “But they’re often so busy taking care of their own clients and staff that they’re not taking care of themselves.”

Halpern recalls one client who was worth $150 million but had no will, no power of attorney and basically no long-term plan. “In my 25 years of doing business, I’ve met many others in similar situations — they’re asset rich and cash poor and haven’t done a lot in terms of planning,” he says. “It’s about digging deeper with these clients to figure out what they need and what they want to see happen in their future.”

With a significant population of baby boomers hitting retirement age, wealth preservation is another major concern among Canada’s affluent these days. “If you were a millionaire in the 1990s you had it made, but today these clients have no delusions that they are wealthy enough to retire unless those millions are in investable assets,” says Mitch Silverstein, a CPA and partner at Richter in Toronto whose clients are mainly companies with annual revenue of $20 million to $300 million. “They’re working longer to achieve whatever desired lifestyle they had envisioned for themselves.”

Coupled with that, Silverstein says, they are at a time in their lives when they’re investigating how to transfer their wealth to the next generation. “It’s an interesting period because Canada is in the process of creating a new generation of millionaires who will have inherited wealth as opposed to making it all themselves,” he says. This new breed may be less conservative with their funds, he believes, because they don’t have the same level of attachment. “They’ve also spent a good portion of their lives in a low-interest environment, which erodes wealth, so they’ll be looking for a higher rate of return on their investments,” he says.

“I think we’re just seeing the tip of the iceberg in terms of businesses being sold by [high-net-worth] clients looking to cash out,” says Khosla. Of the last 10 company sales he’s been involved in, he says only two have resulted in a transfer of the family business to the next generation. “Most felt the best bang for their buck was to position their companies for sale and get out entirely.”

Saul Judelman, a CPA and partner at MNP in Toronto, says his clients, who are mostly self-made millionaires, are quite concerned about whether this next generation is capable of taking over the reins and willing to do so. “I’d say they’re usually capable enough but it’s a question of whether they want to put in the long hours and sacrifice to keep the business successful,” he says.

Does that mean we’ll see the number of Canadian-born millionaires dwindle in the years to come? “Oh, there will still be plenty of millionaires,” says Judelman. “But I think this next generation may get a shock when they realize it’s not as easy as it looks.”

* The criteria organizations use to track millionaires vary. In the case of Credit Suisse, millionaires are tracked individually and must have at least US$1 million in equity, including their share in their primary residence but not including debt. Another popular wealth-tracking group, Boston Consulting Group, tracks millionaire households, not individuals, and private financial wealth does not include investors’ residences and luxury goods, such as art collections or yachts. For his part, CIBC’s Steve Geist says both investable assets and principal residence would be included in calculating net worth. But he adds: “Sometimes we only consider investable assets because that’s what generates potential income.”